Be(a)ware of investment news hype

The massive increase in financial media is great (for personal finance education and literacy), but it has a downside: We are bombarded with more headlines than ever that feed on greed, fear, and doubt, making it easier than ever to get sidetracked into ruts of excitement, confusion, and pessimism.

Everything that's valuable has a cost. The biggest cost in investing is the emotions of being uncomfortable, not knowing what the future will bring and wondering if you're doing the right thing. And then the cost of opportunity loss, as well as the ‘education cost’ of wrong decisions that lead to losing your hard-earned money.

I don’t know about you but my e-mail inbox, even my facebook feed is flooded with pitches for investment newsletters, “free” financial seminars, and even subtle investment solicitations. The solicitations typically brag about the incredible results. The typical structure of the message is shown with examples below:

“I don’t want to say ‘I told you so,’ but [my stock picks generated] an impressive 54.5 percent! That’s the average gain investors who first accepted my offer to join are getting.”“Becoming a millionaire is absolutely possible for you, but you must take this critical first step [to subscribe] now!”

Others play the ‘Religious’ or ‘Faith-based’ card by saying something along the lines of “God wants you to be prosperous!” And if you want to follow the-so-called stock market ‘shepherd’ then become a ‘sheep’ at your own risk.

After being bombarded with dozens of similar promotions, even a self-confident investor might begin to feel inadequate. So, you may be tempted to pay a lot of money to learn a newsletter’s “secret sauce”.

Grain of salt
I often see beginners investing in stocks based on news (letters a.k.a fb groups) with a lot hype built into it. The promise of a huge windfall is very tempting. However, it is extremely risky to invest in a company whose stock price has been hyped up by rumors/news with high analyst expectations riding on it.

But before you act, take a moment to examine the ad/promotion’s claims. Unlike pooled funds (or even insurance-investment hybrid products), whose advertising is regulated, the typical news today,have a lot of freedom to highlight figures that cast them in the best possible light. One way they do that is to make it difficult, if not impossible, for you to verify the figures. Others may provide accurate technicals but will still leave you with a “Caveat” (Meaning buyer/investor beware!) at the end of the statement.

Fake News
Manipulating stocks is an old game, it’s been around since forever and it’s not going away. Investors must learn how to be discerning and be skeptical when they read claims online. Even publicly listed companies can access intermediaries to pay writers to post bullish articles (on “growth”, “expansion” or the like angles).

Thirty years ago, investing was mostly an analytical game, because information was scarce and computers weren't scouring the world for mispriced assets. That's changed. Most analytical opportunity has now been fully exploited. And today it has turned into something driven by greed for quick gains and results.

In other words, the best bulwark against fake investment news is your own judgment; and for that you need to invest in your own financial education and literacy!